Why Is U.S. Economic Mobility Worse in the South?

Aug. 8 (Bloomberg) -- Americans pride themselves on their
intergenerational mobility. Our nation’s exceptionalism is
organized around the American dream: No matter where you come
from and no matter who your parents are, you can rise to the top
of the economic ladder, so long as you are willing to commit
yourself and work hard.

In recent years, however, a great deal of comparative
research has been done on intergenerational mobility, and it
raises legitimate questions about the claim that the U.S. stands
out as a land of opportunity. In 2006, a widely reported study
found that in terms of intergenerational mobility, the U.S.
lagged behind Nordic nations (including Denmark, Finland, Sweden
and Norway) as well as the U.K. For example, Danish men born to
households in that nation’s bottom quintile are far more likely
than their U.S. counterparts to make it to the higher quintiles.

A comprehensive study published in July found that the U.S.
shows less intergenerational mobility than do a number of other
countries, including Germany, New Zealand, Canada, Australia,
France and Japan. The U.S. is marked by a degree of
“stickiness” in the top and bottom 10 percent. If an American
is born to poor parents, he has a decent chance of staying poor,
and if his parents are wealthy, it is a pretty good bet that he
will end up in the economic elite.

However illuminating, the data raise many questions. The
U.S. is a big country, and the aggregate numbers don’t tell us
about variations across states.

Southeast Lags

Does the reality of the American dream depend on whether
you are born in Mississippi, Colorado, Kentucky or New
Hampshire? The answer would help us to establish what, exactly,
is the source of the problem. It could also help us to identify
some responses.

Harvard University economist Raj Chetty and his co-authors
have started to provide such an answer. The big news is that
intergenerational mobility is indeed variable across regions,
states and cities. If you are born in Pittsburgh, Boston, San
Francisco, Minneapolis or New York, you have a fair chance of
getting to the top fifth of the income distribution, even if you
start out in the bottom fifth. But in other cities -- such as
Atlanta; Charlotte; Nashville, Tennessee; and Raleigh, North
Carolina -- children who are born into the bottom fifth are
significantly more likely to get stuck.

The state-by-state data suggest an even more vivid picture.
In almost all of the West, there is a high degree of
intergenerational mobility. The Northeast and the Southwest also
look pretty good. In the Midwest, the picture is more mixed,
with generally high levels of mobility in Minnesota, Nebraska
and North Dakota but disturbingly low levels in some cities,
including Detroit, Indianapolis and Columbus, Ohio.

Intergenerational mobility is markedly low in one region
above all: the Southeast. That region’s cities dominate the list
of those showing the worst levels of mobility, with heavy
representation from Georgia, Mississippi, South Carolina, North
Carolina and Tennessee.

It is tempting to think that economic growth is the crucial
factor, so that we will observe mobility where we also observe
growth. Surprisingly, however, regional differences in mobility
have little to do with differences in growth. It is also
tempting to think that racial differences are involved, but
essentially the same regional differences appear even after
controlling for race.

The good news is that the U.S. as a whole isn’t suffering
from especially low levels of intergenerational mobility. The
problem is fairly localized, and we know where to find it. But
two fundamental questions remain: Why, exactly, is
intergenerational mobility high in some regions and low in
others? And where it is low, what can be done to increase it?

Tax Effects

We don’t yet have answers, but Chetty and his co-authors
offer some preliminary clues. In general, “tax expenditures
aimed at low-income taxpayers have significant impacts on
economic opportunity.” More specifically, intergenerational
mobility is higher in states that have a generous earned income
tax credit as well as progressive income taxes and tax
expenditures.

To be sure, correlation is not causation. Progressive state
taxes could be correlated with other policies (such as a strong
educational system) that are responsible for intergenerational
mobility. Researchers aren’t yet in a position to explain the
high regional variations in intergenerational mobility. But we
know enough to appreciate the immense importance of getting to
the bottom of that particular puzzle. The American dream depends
on it.

(Cass R. Sunstein, the Robert Walmsley University professor
at Harvard Law School, is a Bloomberg View columnist. He is the
former administrator of the White House Office of Information
and Regulatory Affairs, the co-author of “Nudge” and author of
“Simpler: The Future of Government.”)